Hotel Chocolat online marketing manager Chris Bishop is in a good position to discuss both the risks and rewards of affiliate marketing programmes.
Affiliates helped Hotel Chocolat grow its internet business by over 30% last year, but the retailer was also recently forced to crack down on sites breaking its PPC terms and conditions.
We asked Chris for his thoughts on how to get the most out of affiliate strategies - including his 'Love and Respect' theories. Read on for more...
You spoke at Internet Retailing earlier this month about 'next-generation affiliate' marketing. What do you mean by that?
Next-generation affiliate marketing encompasses a number of things, from providing video and audio podcasts and RSS to affiliates, to innovative new technology like web services and click-to-call.
Essentially, it means we’re in that phase where the industry is diversifying past basic implementation and easy money, to a phase where both advertisers and affiliates have to demonstrate diversification, commitment to giving time to relationships and increased results.
Who is in charge of online sales? Affiliate 3.0 is when the consumer is in the driving seat and the advertisers have to follow.
Further to this, I firmly believe affiliate and merchant relationships must continue to develop - it still remains that only a handful or advertisers invest resource into the channel to ensure their publishers are both trained to sell their product and ‘loved’.
This is something we continuing to invest at Hotel Chocolat; we go that extra step. The technology will become givens (respect), that all retailers have. The relationship between the affiliate and the merchant (love) will ensure high value business relations.
I continue to write about my opinions and take on 'Love and Respect' on my blog.
Do you have any advice on what to offer affiliates in terms of commission structures, or any other tips on how to keep them happy and in line with your marketing strategy?
The first step in any commission structure strategy is to look at the market - i.e. what do your competitors pay in comparison to your own offering and your margins?
If you have a stronger brand than your competitors you may get away with a lower offering as your conversion rate may be higher than someone with a lesser known brand.
Commission Junction recommend to many of its clients that keeping the affiliates happy is easiest when you provide constant communication and give them avenues for them to communicate to you.
This strategy ensures you can stay on top of any complaints and in many ways, provide you with new ideas to help provide growth to the programme. If one affiliate has an idea to help him increase sales, the chances are others could also benefit from this action.
Hotel Chocolat’s own marketing strategy of course is tied quite closely to the affiliate strategy - creative and email campaigns mirror the site and other marketing channels, creating an overall brand awareness that reinforces our branding strategy.
Finally, offering samples and rewards for competitions from time to time not only helps keep affiliates happy, it also ensures they become true brand ambassadors to promote to their customer base ensuring loyalty beyond commission!
What are the main pros and cons of using affiliates as a channel for targeted promotions?
- Generate sales or leads and ultimately, revenues.
- Improve branding and increase exposure.
- Create and develop quality affiliate relationships.
- Reduce costs and risks associated with sales.
- Provide measurability and accountability.
- Capture knowledge and market insight.
- Increase relevant traffic with assured quality controls.
- Deliver ROI.
- Provide a platform from which to launch new products, programs, promotions and businesses.
- Reduce duplication of commission payments.
- Could pay out duplicate marketing efforts – brands need a de-duplication solution in place.
- Potential brand misrepresentation – the network should work with you to ensure the brand is represented and protected correctly.
- Can drive up search costs if not controlled appropriately.
- Voucher codes can be mis-used.
- Advertisers can sometimes need a change of perspective – affiliate marketing is not a campaign but a mid to long term programme that doesn’t have a ‘budget’ as such, because it is results based.
- Potential for fraud – i.e high reversals on sales.
You’ve said that you are achieving 15% of your mail order revenue through affiliate marketing. Can you say how the margins on those sales compare to other orders?
We are now reaching close to 20% of our mail order business generated via affiliate marketing, which for a mail order business is exceptional.
Naturally affiliates benefit from all our other channel activity but due to the commercial rules we set in place with the commission tiers, it ensures that the sales come through with solid ROI.
While we track and set expectations for each channel, we are grown up enough not to be fixed on comparison and make each fight for budgets, we take a more holistic view.
Our recent Affiliate Merchants Report found quite an even split between firms on how they budget for affiliate marketing. Do you see affiliates as a marketing or sales cost?
I personally, like with PPC, see it as a sale cost. Most financial directors do view this differently.
At Hotel Chocolat, the board are educated to understand that affiliate marketing is a variable cost - therefore we do not have a fixed budget on this.
Naturally, the higher sales that come through the better (especially as these are set to tough ROI rules).
Stories of affiliate managers emailing their affiliate base thanking them for their achievements then to deliver the sucker blow that due to the successes they have to reduce or stop the promotion, due to budgets running out, still amaze me!
How do you track affiliate customers to check they wouldn’t have come to your site anyway?
Great question! Affiliate marketing or any form of marketing does not work in a vacuum. We put all our efforts to ensure consumers (or as I’d like to call them; people) fall in love with our product and brand.
By tuning our affiliate promotions we ensure we 'catch' those looking for us and our range specifically through an organic manner, and then to ensure they stay with us through our CRM.
Affiliate marketing ensures we see a much longer tail within our promotions -both from a generic gifting point of view and naturally during Christmas, Easter, Mother’s Day and Valentines.
Due to the nature of the internet and the vast amount of gifting merchants, the person will more than likely have been influenced by a number of brands through their decision making process.
It is my job to ensure the affiliates are suitably educated and have the correct tools to convert to a Hotel Chocolat purchase – and therefore be rewarded!
This does continue to be a 'hot topic' as some merchants have closed their affiliate activity. We will carry on discussing this but at this point in time, I’d rather review with the money in the bank.
Have you had any good or bad experiences with voucher campaigns on the web?
We are a luxury retailer and position ourselves in that way - however, we are an accessible brand.
If their [consumers’] accessibility to Hotel Chocolat is for them to collect AirMiles points or Nectar rewards - well, so be it.
Through research, they are more likely to be loyal to the reward vendor, and also the merchant, while also usually raising the average order value.
We aim to be aspirational and for people to fall in love with us, rather for us to sell. If this is via a reward site and their personally customer experience is heightened – fantastic!
What restrictions do you place on affiliates in terms of paid search?
Hotel Chocolat has seen considerable growth over the past year from our PPC affiliates and as an organisation we are very proud of our programme and activity by our affiliates.
Unfortunately, in the past month we have been hit with a handful of affiliates who have abused the rules and continue to break our terms & conditions. We have therefore felt it necessary to update our terms and distribute them. I am well aware that the vast majority of affiliates are keeping within the limits and it is a case of a few bad apples, but unfortunately we felt it was right to ensure our affiliates [do not] add negative keywords to their Hotel Chocolat promotions.
We discussed this in length with our network (Commission Junction), our search agency and most importantly our affiliates.
We have taken a hard line with this, but overall the affiliates reacted very positively. They want to ensure their reputation is intact and their businesses continue to run.
It was a good discussion point on the A4Uforum and also on my blog, but I am happy with the outcome. It was a great example of listening to all parties to ensure search and affiliates can work harmoniously together.
Do you have any thoughts on affiliate marketing on other platforms like mobiles?
While still at the early stages, we are monitoring how affiliates could work to drive sign-ups for mobile services, as well as ways to generate revenue from mobile advertising, applications, WAP sites and other tools.
Alternatively, download our recently-published Affiliate Marketing Merchants Report for more info on affiliate strategies.